Question

Zycon has produced 10,000 units of partially finished Product A. These units cost $20,000 to produce, and they can be sold to another manufacturer for $12,000. Instead, Zycon can process the units further and produce finished Products X, Y, and Z. Processing further will cost an additional $16,000 and will yield total revenues of $30,000.Required:Identify weather the tem is relevant or irrelevant to the sew or process further decision.

Answer 1

Answer:

1. $20,000 cost already incurred to a produce. - Irrelevant

This cost has already been incurred in the initial production and as such are classified as sunk costs. Sunk costs are not relevant to the decision on whether to sell or process the product further.

b. $12,000 selling price - Relevant

As this amount relates to the selling price were the product not to be processed further, it is relevant to the sell or process the products further decision.

c. $16,000 additional processing costs - Relevant

This is the incremental cost should the product be processed further and so is relevant to the decision.

d. $30,000 revenues from processing further. - Relevant.

As the total revenue that could be realized if the product is processed further, this is very relevant to the decision on whether to process further or sell.